CHINA: THE YEAR IN REIVEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00367R000201260001-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 7
• Document Creation Date: December 21, 2016
• Document Release Date: March 3, 2009
• Sequence Number: 1
• Publication Date: February 24, 1984
• Content Type: MEMO

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Central intelligence Agency
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N6shingm,ac2o5os
DIRECTORATE OF INTELLIGENCE /'
24 February 1984
China: The Year in Review
Summary
China's economic situation has continued to
improve and its links with the outside world have
been strengthened since the Third Session of the US-
-China Joint Economic Committee in December 1982.'
Political and economic relations with the United
States have improved markedly. China has made some
progress in reducing tension and increasing trade
with the USSR; but fundamental differences still
divide the two states. Persistent weaknesses in the
economy arid slow progress in.domestic political
reform remain chronic problems for the leadership;
however, we do not believe these will hazard US
efforts to f closer economic relationships with
China.
Domestic Politics
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Deng Xiaoping and his supporters continue to attempt to
stream line government and party organs--replacing excess or
incompetent personnel, as well as those who continue to resist
party policy, with younger and better educated officials and
cadre. The restructuring has been carried out with moderate
success at the upper levels of central and provincial
government. It has yet. to have much impact at lower levels.
The next step in Deng'sreform program is the current party 25X1
rectification program, which began late last year and is aimed at
improving Dengist control of the party and the party's domestic
This memorandum was produced by the China Division.of the 25X1
Office of East Asian Analysis in response to a Treasury
Department request. Questions and comments are welco
should be directed to the Chief of the China Division 25X1
EA M 84-10032
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image. The program is intended to rid the party of "leftists,"
mainly people who were particularly guilty of excesses during the
Cultural Revolution; diehard opponents of the reform policies of
the past several years also fall into this category. Rectif-
ication is also aimed at rooting out the most obvious--or least
protected--of the large number of corrupt party members. The
leadership knows that the party's image is badly tarnished and
that a major cause is the cronyism, trading of favors, and
outright graft common at all levels of the party. Pro a anda
attacking these practices has been unremitting. 25X1
Although many of Deng's reforms move the party in more
liberal directions, there is little toleration of serious
opposition or deviation from the approved line in either the
policy or ideological sphere, or even in social behavior. The
recent campaigns against spiritual pollution and crime, and the
limits the party has increasingly set on individual action, make
this abundantly clear. 25X1
We believe the top leadership is in general agreement over
the goals and most of the tactics of.the Dengist group. There
are those who believe Deng has gone too far in some directions,
especially in decentralizing authority and deemphasizing 25X1
ideology, but the opposition is scattered and disorganized. At
most it can only delay or water down some programs.
More serious is opposition and obstructionism at lower
levels, where programs actually have to be implemented. In our
judgment, attempts to deal with this problem will be only
moderately successful, and lower-level opposition to many
programs will dilute their effectiveness. We suspect this will
be more a political than an. economic problem. In economics, many
measures favored by the top leaders are also very popular with
the common people, while the party rank and file oppose them.
This. difference holds the potential for further estranging the
party from the people at local levels. 25X1.
China's collegial leadership, led by Deng Xiaoping, appears
stable despite scattered reports of disputes over ideological,
economic, and personnel issues. Deng's chosen successor, General
Secretary Hu Yaobang, was the target of increased criticism late
last year for ideological errors and for his leadership style.
Hu has weathered the storm but his leadership credentials were
somewhat damaged. The succession question is clouded by the
unwillingness of the party elders to retire gracefully. If the
79-year-old Deng were to die in the near future, Hu would still
have to share power with one or more party 'veterans. 25X1
Domestic Economic Policy
A major factor in the maintenance of power by Deng Xiaoping
and the leaders around him.has been the aura of success generated
by their economic policies of the past four years. Overall
growth has averaged over 5 percent per year during the period,
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and personal consumption and the qualityy of life in both urban
and rural China have steadily improved. Increases in the
quantity and variety of food supplies and clothing, as well as
badly needed additions to housing, now seem to b an nt
source of popularr support for the leadership. 25X1
The Chinese economy nevertheless still suffers from the
aftereffects of two decades of mismanagement. Efforts to
revitalize economy have been hampered by the need to confront
threats to basic economic stability, such as inflation,
unemployment, and budget deficits. Beijing has been particularly
frustrated by its inability to get industrial managers to improve
quality, eliminate waste, and cut costs. Moreover, management
reforms aimed at reducing costs have interfered with urgently
needed energy and transportation projects. Enterprises have used
retained profits to expand their facilities unnecessarily, using
cement, steel and other construction materials needed by high-
priority infrastructure projects. Currently, Beijing has adopted
a more cautious approach to management reform, making only minor
policy. changes to deal with immediate problems. Chinese planners
have said that further systemic reforms--including reform of a
price system that now leads to inefficient allocations of
resources--will have to wait until at least 1985. 25X1
The Chinese economic policymaking process has become more
orderly and policies are more practical and growth-oriented.
Over the past year, Beijing has,also experimented with Western
demand-management policies. The banking system has been
restructured to make monetary policy a viable option and fiscal.
tools have been put'into use. The Sixth Five Year Plan (1981-
85), approved in late 1982, provides a reasonably well-defined .
policy framework and aims at establishing the foundation for more
rapid growth in the 1990s. A number of the Plan's relatively
moderate targets were fulfilled in 1983, two years early.
Others, such as those fo.r energy, may be difficult to, achieve.
Problems of addressing these imbalances in sectoral growth-may in
part be responsible for the current delay in publication of. the
national budget and annual plan for 1984. 25X1
Over the longer term, we suspect that the good economic
performance of the past few years will be far more difficult to
sustain: The deficiencies of the overworked transport system
will take years to remedy, as will expanding China's capacity to
produce energy and get it to where it is needed. Shortages of
scientists, engineers, and technicians will ease slowly unless
Beijing undertakes a more rapid expansion of educational
facilities than is now planned. China's attempts to limit
population growth, particularly in the rural areas, are also not
proceeding well. This-suggests _that the increasing pressure of
population on food supplies, housing, and other resources will
become a major constraint on sustained and balanced economic
growth in the late 1980s and 1990s. I 25X1
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Foreign Economic Policy
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Over the past year, Beijing has continued to enlarge the
"open door" to foreign participation in the economy. Although
the spiritual pollution campaign--the attack on undesirable
cultural influences resulting from increased contacts with the
West--holds a potential for limiting foreign activity in China,
the leadership so far.has been careful to insulate economic
matters from its effects. The leadership thus continues to
expand China's foreign trade and to emphasize forei n investment
and the import of foreign technology. 25X1
For the second consecutive year, recession and growing
protectionism in'the developed West slowed the growth of China's
exports. Exports totaled $24 billion in 1983, up only 2 percent
from the level of 1982. Declining exports to the West led China
to open.up.new markets in the Middle East, Eastern Europe, and
the Soviet Union. Last year, imports rose almost 11 percent to
$18.5 billion. In contrast to 1982 when foodstuffs were the only
major category of imports to increase, last year China stepped up
imports of industrial supplies and capital goods. In 1983, China
placed new emphasis on purchasing technology. We believe
payments for industrial know-how, production licenses, technical
services, and various forms of consultancy may have reached $2 25X1
billion during the year. We expect this trend to intensify as
China moves more aggressively to remedy the technological
backwardness that pervades most economic activity and to develop
ts indigenous capabilities for research and development.
Beijing is also beginning to make progress in attracting
foreign investment. We estimate that at yearend 1983, total
paid-in foreign investment amounted to approximately $1.2 billion
well above the $400 million level of 1981. The main obstacles to
better results in attracting investment remain China's
inexperience, its stultifying bureaucracy which hampers the
development of enduring relationships with foreign businessmen,
and its lack of adequate infrastructure. Nevertheless, we expect
foreign investment to increase further in part as a result of the
September 1983 modification of China's Joint Venture Law, which
provides for longer tax holidays and greater access to the
domestic market. The exemption of joint ventures from import
taxes earlier this year and the enactment of new laws clarifying
the legal status of wholly-owned foreign companies, expected
Ljr, should further encourage foreign investment.
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China's economic relationships with the Soviet Union also
expanded in 1983, principally as the result of the easing in
political tension between the two states. Sino-Soviet trade rose
to about $700 millionn last year and is planned to; rise by 60
percent this year. There are also some indications that Beijing
may be willing to consider a long-term trade agreement with
Moscow. China also reportedly has agreed to use Soviet
assistance in the technical upgrading of several industrial
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facilities built by the USSR in the 1950s. We continue to
believe, however, that the Soviet and East European. role in
China's modernization will remain small, in part because of
Soviet inability to provide technology as advanced as that
available in the West and Japan, and in part because of Beijing's
continued reluctance to allow any significant expansion of the
now limited Soviet presence in China. 25X1
Foreign Policy
Despite the more nationalistic and independent stance in
foreign policy adopted by China
primary goals remain the same:
and reunification. China still
States in particular to counter
for access to Western technology
modernization domestically--has
over the past two years Beijing's
security, economic modernization,
looks to the West and the United 25X1
Soviet expansionism. The need
and markets--to promote
reinforced that decision.
After several years of "jolts and uncertainties", the '
Chinese have moved to establish smoother working relationships
with the United States and 'used the recent visit of Premier Zhao
Ziyang to do so. Although Beijing has publicly denied that it
seeks a strategic partnership with the United States,. it believes
that good relations will strengthen its position in the Sino-USSR
strategic triangle. While in Washington, Zhao stressed that US
adherence to the bilateral communiques--especially the gradual
reduction of arms sales to Taiwan--and avoidance of provocative'
public statements would suffice to "dispel the.clouds" looming
over US-China relations. Chinese leaders count on the United
States making a significant contribution to their modernization
program through technology transfer, US funding of international
lending institutions, and greater investment by US business in
Chinese industry. They also hope that improving politic'al.ties
with the United States and being a arms will help
counter Soviet pressure on China.,
Although the Chinese and Soviets have taken some steps to
improve bilateral ties--and will hold a four.th'round of
normalization "consultations"'on 12 March--there has been no
progress on 'the security issues that continue to divide them.
Beijing still calls for an end-t6 Soviet support for the
Vietnamese invasion of Kampuchea, a Soviet withdrawal from
Afghanistan, and troop reductions along their common border. The
Soviets steadfastly refuse to discuss either Vietnam or
Afghanistan, but have hinted?that they might be willing to
withdraw some of their forces from Mongolia if Beijing concludes
a.nonaggression agreement with Ulaanbaatar. Because the Soviets
are committed to establishing themselves as a major Pacific
power; they are unwilling to sacrifice their gains for
uncertain benefits of .improved relations with China.
The Chinese are still attempting to determine the degree to
which the United States is willing to assist China's economic--
and by extension, military--modernization. Although the United
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States moved China to Category V last year thus streamlining the
export licensing process for many of the technologies Beijing
wants, the technology transfer issue has joined the Taiwan issue
as one of China's litmus tests of Sino-US relations. While
Beijing remains acutely sensitive to how the-United States treats
these issues, it continues to express a strong desire for better
relations. China views the forthcoming visit of President
Reagan, as well as other meetings such as those of the Joint
Economic Committee, as major steps to that end.
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Distribution:
Department of Treasury
1 - Steven Canner, Director,-Office of East-West Trade
National Security Council
1 - David Laux, Senior Staff Assistant for China,
Taiwan and Hong Kong
Central Intelliqence Aqenc
1 - DDI
1.- NIO/EA
1 - D/OEA
1 - Ch/Prod/EA
1 - Ch/SDS
1 - un/L m na uivision.
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